In the judgment given in White, In the matter of Macro Realty Developments Pty Ltd and Macro Realty Pty Ltd  FCA 1377, Justice McKerracher of the Federal Court of Australia considered (amongst other things) whether the Court could determine and approve the remuneration of a court appointed liquidator under the former section 473 of the Corporations Act1 (the Act) where no creditors’ meeting had been convened beforehand to consider and if thought fit approve the liquidator’s remuneration.
The application was brought by the former provisional liquidators and the current court appointed liquidators (Applicants) of Macro Realty Developments Pty Ltd (MRD) and Macro Realty Pty Ltd (MR).
The Macro Group of companies previously carried on a property development business in Western Australia’s Pilbara region. It was largely debt funded by non-traditional financiers and private investors who were predominantly based overseas. Following investor complaints and an investigation by the Australian Securities Investment Commissions (ASIC), the Applicants:
The Applicants sought orders for the determination and approval of their remuneration as provisional liquidators of MRD and MR, and as liquidators of MRD.
As at the date of the Applicants’ remuneration application:
The application for approval of the remuneration of MRD’s liquidators was brought under the former section 473 of the Act. Although this section has been repealed and replaced by provisions contained in the Insolvency Practice Schedule (Corporations), it continues to apply to appointments made prior to 1 September 2017.
The application was also brought pursuant to former rule 9.4 of the Federal Court (Corporations) Rules2 (the Rules).
Section 473(3) provides that:
A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a) if there is a committee of inspection—by agreement between the liquidator and the committee of inspection; or
(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i) by resolution of the creditors; or
(ii) if no such resolution is passed—by the Court.
The critical sub-section is 473(3)(b)(ii) which deals with the situation where there is no committee of inspection or no agreement by the committee, and where there is no resolution of the creditors.
As noted by Justice McKerracher, there are two lines of authority about how section 473(3)(b)(ii) operates.
The first line of authority strictly provides that the court has no jurisdiction to determine a court appointed liquidator's remuneration unless and until a creditors’ meeting has been convened beforehand. Former rule 9.4(2)(b) of the Rules also provides that an application under section 473(3)(b)(ii) cannot be made in the Federal Court until after the date of the creditors’ meeting held to consider the liquidator’s remuneration.
However, there is a second line of authority where courts have determined a court appointed liquidator’s remuneration where no creditors’ meeting was held, but where it was impossible or not practically possible to convene a meeting of creditors. Interestingly, despite the terms of former rule 9.4(2) of the Rules, former rule 9.4(3)(c) actually provides for a mode of service of notice of a remuneration application where there is no committee of inspection and where no creditors’ meeting has been held.
Having considered the two lines of authority, Justice McKerracher held that:
His Honour emphasised that this type of outcome would only arise in rare cases, confirmed that the primary processes for approval were via any committee of inspection or a resolution of the creditors, and noted that liquidators should not feel encouraged to apply to the Court to seek orders in respect of their remuneration and thereby circumvent the primary processes provided for under the Act.
Justice McKerracher was ultimately satisfied that there was no real prospect of the Applicants being able to convene a meeting of creditors of MRD to determine the MRD liquidators’ remuneration, and that the Court had jurisdiction to determine the remuneration application, given that:
Justice McKerracher was also satisfied that the detailed evidence filed by the Applicants established on a prima facie basis that the work undertaken in the MRD liquidation was reasonably necessary, that the remuneration claimed was fair and reasonable, and that sufficient information had been provided to enable potential objectors to review the amounts claimed.
Given the confirmation of jurisdiction, establishment of the prima facie case as to reasonableness of the remuneration, satisfaction of the notice and service requirements and the lack of any objections, Justice McKerracher granted the remuneration relief sought.
This is an important decision as there are still a number of appointments that are subject to the old law under the transitional provisions.
While the decision confirms the orthodox approach to assessing a remuneration claim, it provides important guidance as to how the conflicting authorities regarding the need to hold a creditors’ meeting to approve a court appointed liquidator’s remuneration before any application to the court should be read and understood.